This paper is a follow-up to the comprehensive report “Beyond the Headlines: The Real Impact of Western Sanctions on Russia”, which was published by the Wilfried Martens Centre for European Studies in November 2022. Back then, the paper argued that the widespread view of Russia “weathering” the sanctions, which supposedly brought only a “limited” impact, was wrong, and actually based on an erroneous focus on just a handful of manipulated or misleading macroeconomic indicators, such as GDP, the ruble exchange rate, unemployment, and inflation. A broader cross-sectoral look and focus on a wider set of indicators more realistically reflecting the contraction of economic activity showed a totally different picture: that the sanctions in fact were having a much wider, systemic, and lasting economic impact, which would only continue to increase over time. This meant that sanctions were working, and strategic patience was needed to see their full, devastating impact on the Russian economy. And all this was before the EU embargo on Russian oil came into effect, cutting Russia off yet another significant part of its energy export revenues.

Since then, the situation has gotten much worse for Putin and the Russian economy. First and foremost, the EU oil embargo – on the backdrop of intensified Russian military spending – has thrown Russia into a full-blown budget crisis, something which the country was able to escape in 2022. The 2022 fiscal year ended with a significant deficit (2,3% of GDP) after being in surplus for 11 months; in the first four months of 2023, the budget deficit has exceeded the planned annual deficit (envisaged by the federal budget law) by 17%. It is important to note that, with a significant drop in private and foreign investment, the economy has increased its reliance on state assistance – the weakness of governmental finances, therefore, is a major impediment to any recovery.